The EU General Court has ruled that the same person cannot occupy both the post of chairman of the board of directors and that of “effective director” in credit institutions subject to prudential supervision under the CRD IV Directive (2013/36/EU).

Under the Regulation establishing the Single Supervisory Mechanism (Regulation 1024/2013) (“SSM Regulation“), the European Central Bank (“ECB“) is responsible for the prudential supervision of Crédit Agricole (a non-centralised French banking group that is comprised, among others, of regional agricultural credit union branches). In this role, the ECB approved the appointment of certain individuals as chairmen of the board of directors of four of those regional branches, but objected to them carrying out at the same time the function of “effective director”. The branches asked the General Court to annul the ECB’s decision, arguing that the ECB did not correctly interpret the concept of effective director when it said that there must be a separation of the exercise of executive and non-executive functions within a management body.

The General Court rejected the actions of the four regional branches and held that the ECB had correctly interpreted the concept of effective director. The court analysed the concept of effective director of a credit institution in the light of Article 13 of the CRD IV Directive. Its analysis of the textual, historical, teleological and contextual interpretations of Article 13 established that the concept refers to the members of the management body who are part of the senior management of the credit institution. The court held that, as the ECB had correctly interpreted the concept of effective director, it had also correctly applied Article 88 of the CRD IV Directive, which provides that the chairman of the management body in its supervisory function of a credit institution (such as the chairman of the board of directors) may not exercise at the same time (without express authorisation of the competent authorities) the function of CEO in the same institution. The court found that the effectiveness of the supervisory function may be jeopardised if the individual appointed to the non-executive role of chairman of the board of directors, while not formally occupying the role of CEO, was also responsible for the effective direction of the business of the credit institution.